Retailers, distributors adjust to boom

A glass of beer is poured at Rubicon Brewing in West Sacramento, Calif. Rubicon brews all of its beer on location at its brew pub on 20th and Capitol streets.

By Jack Newsham, The Sacramento Bee

Five years ago, the warehouse of Woodland, Calif., beverage distributor V. Santoni & Co. was stocked with fewer than 300 varieties of beer.

Today the company’s inventory contains 1,800 brews, a change that reflects the exploding number of mostly small companies making craft beer. Santoni president Charley Santoni said he’s had to install new shelving to make more space for the growing inventory.

“Customers’ tastes are changing,” Santoni said. “This is becoming more like the wine industry.”

Across the nation, grocers and distributors are scrambling to meet the growing consumer thirst for craft beers. National domestic brands are flagging, and the beverage giants that have long dominated the U.S. beer industry are struggling to adapt as sellers push microbrews.

The shift can be seen at retailers large and small. John Yoon, who owns A&P Liquor in Sacramento, Calif., said that he’s gone from devoting four of his 10 coolers to large domestic brands to stocking only two of his coolers with them, and has to turn down requests to stock a new beer “almost every day.”

“On the weekends, people buy more domestic beers” for entertaining, Yoon said. But during the weekdays, he said, “a lot more people drink it for the taste.”

With more than 300 breweries in California alone, retailers are feeling the pressure of limited shelf space. Chris Wilcox, the beer manager of a Total Wine and More store in Sacramento, said that beer shelving at his store was around 90 percent full.

One level up the supply chain, the distributors who keep stores and restaurants stocked with beer are also under pressure. With a wider variety of products to sell to stores with different demands, they’re swelling their sales forces and paying close attention to new breweries.

“It is becoming very competitive to try to get the distribution rights for these up-and-coming breweries,” said Santoni. “I’m trying to go ahead and take some risks and pick these guys up while they’re new.”

But the market is crowded, and small breweries say that despite rising demand for craft beers, it can be hard to crack it.

Ryan Graham, who owns Track 7 Brewery in Sacramento, said his company distributes its own beer using employees’ personal vehicles. He’s interviewed several distributors, but for now, not having one means Track 7 is mostly limited to delivering beer within 15 miles of the brewery.

“A number of our restaurants have run into some supply issues in the past few months,” Graham said. Sometimes, he said, they go six weeks before he can replenish their stocks.

Entering new geographic markets can be a special challenge for craft breweries. In interviews, brewers said drinkers’ loyalty to local brewers could be hard to overcome, and cited Oregon and Southern California as more mature markets with lots of established breweries to compete against.

Ryan Fry, whose Davis, Calif., brewery Sudwerk is one of the older craft beer makers in the Sacramento area, said distributors in distant markets are reluctant to take on new beers without marketing support from the brewer, if they can take them on at all.

Despite these challenges, the craft beer industry continues to grow. Glynn Phillips, owner of Rubicon Brewing Co., opened a new brewing facility in West Sacramento in July. The new facility is equipped to brew another 4,000 barrels per year, increasing Rubicon’s production capacity threefold to deal with demand that has grown by more than 20 percent for each of the past three years.

“It’s been borderline unmanageable,” Phillips said. In the broader craft brew market, he said, “there’s plenty of space for everybody.”

Responding to this trend, huge companies like Anheuser-Busch InBev and MillerCoors have introduced new product lines and acquired smaller breweries.

“The whole concept of think local, support local, drink local is everywhere across America,” said Bump Williams, a beer industry consultant.

Williams explained that while craft beers were only about one-sixth of the U.S. beer market, their consistently high growth rate was drawing national brands into the market with what he called “introductory craft beers” like AB InBev’s Shock Top.